Commissioner of Income-tax v. Jubilant Offshore Drilling Pvt Ltd
[Citation -2014-LL-1124-9]

Citation 2014-LL-1124-9
Appellant Name Commissioner of Income-tax
Respondent Name Jubilant Offshore Drilling Pvt Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 24/11/2014
Judgment View Judgment
Keyword Tags commencement of business • scheme of amalgamation • guarantee commission • audit fee
Bot Summary: In our opinion, the Commissioner of Income Tax rightly deleted the said disallowance after observing that the business of the assessee had been set up and the expenditure incurred was business expenditure. Oil production would be the second stage of business activity, but this would not undo the commercial and business activities relating to oil exploration. The assessment order itself refers to the judgment of the Andhra Pradesh High Court in CIT versus Sponge Iron India Ltd. 201 ITR 770 that for commencement of business all activities which go on to make business need not be started simultaneously. As soon as an activity which is an essential activity in the course of carrying on the business is started, the business must be said to have commenced, yet the Assessing Officer failed to apply the said ratio. The Gujarat High Court in CIT versus Saurashtra Cement and Chemicals Industries Ltd 1973 91 ITR 170 held, ... business is nothing more than a continuous course of activities and all the activities which go on to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede the other activities is started. Once we hold that the business had been set up or rather the business had commenced, the said addition made by the Assessing Officer disallowing the claim under Section 35D of the Act has to be rejected.


IN HIGH COURT OF DELHI AT NEW DELHI ITA 694/2014 Date of decision: 24th November, 2014 COMMISSIONER OF INCOME TAX Appellant Through Mr. Balbir Singh, Sr. Standing Counsel & Mr. Abhishek Singh Baghel, Advocate. versus JUBILANT OFFSHORE DRILLING PVT LTD Respondent Through Mr. Vaibhav Kulkarni, Advocate. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J. (ORAL) This appeal by Revenue relates to Assessment Year 2008-09 and impugns order dated 14th February, 2014 passed by Income Tax Appellate Tribunal (Tribunal, for short) in case of M/s. Jubilant Offshore Drilling Private Limited. 2. We have examined assessment order, but it is difficult to appreciate and accept logic and reasoning of Assessing Officer to hold that business of assessee had not been set up and, therefore, expenditure of Rs.1,69,72,374/- should be treated as pre-operative expenses. said expenditure was accordingly disallowed and income as returned was enhanced by Rs.1,69,72,374/-. Assessing Officer further directed initiation of penalty for concealment under Section 271(1)(c) of Income Tax Act, 1961 (Act, for short) for said disallowance. 3. In our opinion, Commissioner of Income Tax (Appeals) rightly deleted said disallowance after observing that business of assessee had been set up and expenditure incurred was business expenditure. Tribunal has affirmed said finding. 4. respondent-assessee was incorporated in March, 2004 and since then engaged in business of oil and gas exploration, etc. In proceedings for earlier Assessment Years, i.e. 2005-06 to 2007-08, it has been accepted that business of respondent assessee had commenced. assessee had acquired and was granted licences by Government of India under New Exploration Licensing Policy. respondent had acquired participating interest with effect from 16th October, 2004 in block KG-OSN 2001/3 under scheme of amalgamation and agreement with M/s. Jubilant Enpro Private Limited approved by Delhi High Court vide orders dated 20th April, 2005 and 23rd May, 2005. 5. assessee had explained and asserted that business of assessee had in fact commenced because they had started oil exploration operations. Therefore, it is not case where business had merely been set up, but case where actual operations had commenced. reasoning given by Assessing Officer that till oil production starts, business would not set up, is clearly fallacious and has to be rejected. reason is simple that oil exploration itself was one of business activities undertaken by respondent-assessee. Oil production would be second stage of business activity, but this would not undo commercial and business activities relating to oil exploration. assessment order itself refers to judgment of Andhra Pradesh High Court in CIT versus Sponge Iron India Ltd. (1993) 201 ITR 770 (AP) that for commencement of business all activities which go on to make business need not be started simultaneously. As soon as activity which is essential activity in course of carrying on business is started, business must be said to have commenced, yet Assessing Officer failed to apply said ratio. Gujarat High Court in CIT versus Saurashtra Cement and Chemicals Industries Ltd [1973] 91 ITR 170 (Guj.) held, ... business is nothing more than continuous course of activities and all activities which go on to make up business need not be started simultaneously in order that business may commence. business would commence when activity which is first in point of time and which must necessarily precede other activities is started. similar view was taken in Sarabhai Management Corporation Ltd versus CIT [1976] 102 ITR 25 (Guj.), which was upheld by Supreme Court vide its order reported in [1991] 192 ITR 151 (SC). 6. respondent-assessee being conscious of fact that revenue would be generated once oil production commenced had capitalised expenditure on oil exploration cost and same was reflected as capital work in progress in balance sheet. This was in accord with principle of matching of revenue or earnings with expenditure. This is not reasoning and ground given by assessing officer to disallow expenditure of Rs.1,69,72,374/-. This is not ground or reason raised before Tribunal or before us. 7. expenditure of Rs.1,69,72,374/- which has been claimed as revenue deduction in said year, was under following heads:- S. No. Expense Amount (in Amount (in claimed Rs.) Rs) Operating and other expenses 1 Legal and 10,75,298 Professional expenses 2 Audit fee 1,96,630 3 Filing fee 20,85,649 4 Forex loss 1,25,000 5 Miscellaneous 10,649 expenses Total (A) 34,93,226 Finance charges 6 Bank charges 1,08,13,329 and Guarantee Commission Total (B) 1,08,13,329 Depreciation claimed 7 Depreciation 26,65,819 claimed Total (C) 26,65,819 Operating expenses disallowed (A)+(B)+(C)=(D) 1,69,72,374 8. Noticeably, respondent assessee had themselves added back Registrar of Companies filing fee of Rs.20,80,000/- and had applied/claimed said expense under Section 35D of Act. depreciation of Rs.26,65,819/- had also been added back by respondent assessee. This factual position was ignored in assessment order, without any explanation. Other expenditure was not directly relatable and having nexus with oil exploration costs. This is not finding of assessing officer or issue raised before us. They are clearly business expense. 9. Assessing Officer had also disallowed Rs.2,90,854/- under Section 35D of Act being expenses relating to increase in authorised capital. Once we hold that business had been set up or rather business had commenced, said addition made by Assessing Officer disallowing claim under Section 35D of Act has to be rejected. 10. appeal is dismissed in limine. appellant, i.e. Commissioner of Income Tax, Delhi-II will pay cost of Rs.10,000/- to Prime Minister s Relief Fund as we find that appeal in present case is wholly misconceived and should not have been filed. said cost will be paid within three months of date when copy of this order is received by office of Commissioner of Income Tax, Delhi-II. SANJIV KHANNA, J. V. KAMESWAR RAO, J. NOVEMBER 24, 2014 VKR Commissioner of Income-tax v. Jubilant Offshore Drilling Pvt Ltd
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